Prime Retail reports drop of 68% in operations funds

Sales of outlet centers to reduce debt are blamed

August 15, 2002|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Faced with increased vacancies and fewer properties in its portfolio, Prime Retail Inc. reported yesterday that its funds from operations plummeted 68 percent in the second quarter, and that it was in technical default on one of its loans.

Fighting to stave off bankruptcy, the Baltimore-based outlet center owner said funds from operations - a key measure of a real estate investment trust's performance - slid to $2.26 million in the quarter that ended June 30, from $7.1 million from the year-earlier period.

Prime blamed its loss of revenue partly on the diminishing number of outlet centers in its portfolio. The company has sold eight centers since early last year on its path to paying down debt, which totaled about $860 million at the end of June.

Prime, which owns two of the three centers it operates in Maryland, owns 32 properties outright.

It partly owns and manages nine other properties through joint ventures.

Base rents at the company's properties fell to $24.9 million in the quarter 10 percent less than in the second quarter last year.

Prime's net loss more than quadrupled, to $30.2 million in the quarter from $6.8 million in last year's second quarter.

Glenn D. Reschke, Prime's chairman, president and chief executive officer, said the company's retail tenants are under pressure to stay profitable, leading them to seek rent concessions.

Prime warned in May that it would default on some loans in the second quarter.

Reschke said Prime is in technical default on bonds connected to an outlet center in Chattanooga, Tenn., because income there has fallen. Prime is making payments on that debt, he said.

"We're in conversation with the lenders, and they've indicated to us that they're not interested in pursuing any kind of default," Reschke said.

Prime paid down a high-interest loan from $90 million to $35 million, he said. That figure could be whittled further by the end of the year as Prime seeks to sell an outlet center in Puerto Rico. That could bring in an additional $15 million, Reschke said.

"We're still working on getting healthy," he said. "We've come a long way and we got some ways to go, but we're going to get through this."